In The Words Of Mary Jo White
SEC Chair Mary Jo White delivered a speech last week titled “Deploying the Full Enforcement Arsenal” before the Council of Institutional Investors.
The focus of White’s speech was on how the SEC is “deploying [its] full enforcement arsenal for the benefit of investors.”
While there was one reference to the Foreign Corrupt Practices Act in White’s speech, her speech was general in nature and touched upon the following issues (all of which are relevant to FCPA enforcement): SEC enforcement principles, how the SEC should be aggressive and creative when employing its enforcement tools, the importance of deterrence, corporate penalty issues, the SEC’s neither admit nor deny settlement policy and recent revisions to this policy, and the importance of individual enforcement actions.
After highlighting excerpts from White’s speech, this post discusses two issues where White’s rhetoric and the reality of the SEC’s FCPA enforcement program most diverge.
“Enforcement Principles
Another key priority for me, as you would expect, is our enforcement program – building on past successes and making it as strong and effective as it can be. A robust enforcement program is critical to fulfilling the SEC’s mission to instill confidence in those who invest in our markets and to make our markets fair and honest.
[…]
In many ways, the most visible face of the SEC is what we do to enforce the law. After all, most Americans do not see how well our experts examine a financial firm, review a regulatory filing, or conduct economic analysis on a complex rule.
But they do pay attention when we bring a major enforcement action against a major financial institution, when we charge a hedge fund executive with insider trading, when we freeze a suspected Ponzi schemer’s assets, or when we charge a CEO with fraud.
As many here know, I spent a good part of my professional life in the enforcement arena. I have focused much of my career not only on pursuing wrongdoers, but also on deterring wrongdoing.
When I arrived at the SEC, I came with a very high opinion of the enforcement division, having seen and admired their work up close – both as the U.S. Attorney when we worked side-by-side doing securities fraud cases, and from the other side of the table as a private lawyer.
Any objective and informed observer agrees that the SEC has an exceptional enforcement record. Its performance in the aftermath of the financial crisis was particularly impressive. Since 2008, the enforcement division has brought crisis-related actions against more than 160 entities and individuals, including many CEOs and other senior executives, barred dozens of fraudsters and returned billions of dollars to harmed investors. And they did it while also bringing literally thousands of other non-crisis-related cases at the same time – despite limits on resources and legal restrictions on the amount of penalties that the SEC can seek and recover.
As we continue to build on this impressive record, we will be guided by some overarching principles.
Be Aggressive and Creative
First, we must be aggressive and creative in the way we use the enforcement tools at our disposal.
That means we should neither shrink from bringing the tough cases, nor fail to bring smaller ones. When we detect wrongdoing, we should consider all the legal avenues to pursue it. If we do not have the evidence to bring a case charging intentional wrongdoing, then bring the negligence case that does not require intent.
And when we resolve cases, we need to be certain our settlements have teeth, and send a strong message of deterrence. That is why in each case, I have encouraged our enforcement teams to think hard about whether the remedies they are seeking would sufficiently redress the wrongdoing and cause would-be future offenders to think twice.
We obviously cannot put offenders in jail like a U.S. Attorney can. And in many cases, the law limits the penalties the SEC may obtain to amounts that both we and the public think are too low. Under current law, we cannot assess a penalty based on investor losses, but are limited instead to the usually much lower figure based on the ill-gotten gains of a defendant.
That is why I support, as did my immediate predecessors, legislation introduced in Congress that would allow us to seek penalties based on either three times the ill-gotten gains or the amount of investor losses – whichever is greater. Among other things, the proposed legislation also would authorize us to seek additional penalties if the wrongdoer is a recidivist – a repeat offender who has been undeterred by prior enforcement actions. These would be very powerful, additional tools.
In the meantime, we must make aggressive use of our existing penalty authority, recognizing that meaningful monetary penalties – whether against companies or individuals – play a very important role in a strong enforcement program. They make companies and the industry sit up and take notice of what our expectations are and how vigorously we will pursue wrongdoing.
Some years ago – in 2006 – the Commission issued a press release in the context of two settled cases setting forth the thinking of the five Commissioners at the time about the relevant factors to consider in deciding whether corporate penalties should be imposed and to what degree. Today, we have an entirely new Commission.
I have been asked what I consider the import today of this release to our consideration of corporate penalties. As an initial matter, it is important to remember that the release was not then, and is not now, binding policy for the Commission or the staff.
While it is not a binding policy, the 2006 press release in my view sets forth a useful, non-exclusive list of factors that may guide a Commissioner’s consideration of corporate penalties, such as the egregiousness of the misconduct, how widespread it was, and whether the company cooperated and had a strong compliance program. The enforcement staff still references these factors as well as other inputs when analyzing and proposing their own recommendations to the Commission.
Ultimately, however, each Commissioner has the discretion, within the limits of the Commission’s statutory authority, to reach his or her own judgment on whether a corporate penalty is appropriate and how high it should be.
The bottom line for me is that corporate penalties will be considered in all appropriate cases. Whether, in fact, to seek a corporate penalty and the appropriate amount are decisions that must be based on a consideration of all the facts and circumstances of each case and the objectives of a strong enforcement program.
Strong penalties are just a starting point. When we sue a company for wrongdoing, we should consider whether to require the company to adopt measures that make the wrong less likely to occur again.
This is something we already do, in some cases. For example, when we settle with a firm in a foreign corrupt practices case, we often require it to put in place better training and reporting programs. Such forward-looking measures can also be useful in other kinds of cases. When we enter into a settlement with a company involving systems control failures, for example, we should consider mandating new policies and procedures and other controls, and require that a compliance consultant test these controls.
Expect to see more such mandatory undertakings in future cases so that we are not just punishing past wrongs, but also acting to prevent future wrongs.
Demand Accountability
Another principle of an effective enforcement program is the recognition that there are some cases where monetary penalties and compliance enhancements are not enough. An added measure of public accountability is necessary, and in those cases we should demand it.
Until recently, the SEC – like most other federal agencies and regulators with civil enforcement powers – settled virtually all of its cases on a no-admit-no deny basis. Generally, a party would pay a hefty penalty and agree to an injunction against future misconduct, but neither admit nor deny the wrongdoing asserted by the SEC in a court complaint or set forth as findings in an order instituting administrative proceedings.
In most cases, that protocol makes very good sense. It makes sense because the SEC can get relief within the range of what we could reasonably expect to achieve after winning at trial. By settling, the agency is able to eliminate all litigation risk, resolve the case, return money to victims more quickly, and preserve our enforcement resources to redeploy to do other investigations – ordinarily, a significant win-win. But sometimes more may be required for a resolution to be, and to be viewed as, a sufficient punishment and strong deterrent message.
In 2012, the SEC changed the no-admit-no-deny language as it applied to settlements with parties that have pled guilty in a related criminal action. In these cases, we now explicitly reference these admissions in the SEC settlement. It was a first step towards greater accountability, and a good one.
But when I started at the SEC, I re-examined our approach and concluded that there are certain other cases not involving any parallel criminal case where there is a special need for public accountability and acceptance of responsibility.
As you might expect, much of my thinking on this issue was shaped by the time I spent in the criminal arena, where courts cannot accept a guilty plea without the defendant first admitting to the unlawful conduct. Anyone who has witnessed a guilty plea understands the power of such admissions – it creates an unambiguous record of the conduct and demonstrates unequivocally the defendant’s responsibility for his or her acts.
But what about resolutions that do not require a guilty plea?
In 1994, when I was a U.S. Attorney, I entered into the first-ever deferred prosecution agreement (DPA) with a company – a tool the Department of Justice frequently uses today. Essentially, a DPA is an agreement that the government will file a criminal charge, but defer its prosecution for a period of time during which the party must demonstrate good behavior and satisfy the other terms of the agreement. These terms can include very significant payments of money, enhanced compliance requirements, and sometimes an outside monitor.
Back in 1994, there was no template for those agreements. Nothing required an admission or confession of wrongdoing. But I decided in that particular case that a public admission of wrongdoing was required for the resolution to have sufficient teeth and public accountability. So considering this history, it should not be surprising that I would follow that same approach in my new role as Chair of the SEC.
Since laying out this new approach, the most frequent question we get is about the types of cases where admissions might be appropriate.
Candidates potentially requiring admissions include:
- Cases where a large number of investors have been harmed or the conduct was otherwise egregious.
- Cases where the conduct posed a significant risk to the market or investors.
- Cases where admissions would aid investors deciding whether to deal with a particular party in the future.
- Cases where reciting unambiguous facts would send an important message to the market about a particular case.
To reiterate, no-admit-no-deny settlements are a very important tool in our enforcement arsenal that we will continue to use when we believe it is in public interest to do so. In other cases, we will be requiring admissions. These decisions are for us to make within our discretion, not decisions for a court to make.
Pursue Individuals
Another core principle of any strong enforcement program is to pursue responsible individuals wherever possible. That is something our enforcement division has always done and will continue to do. Companies, after all, act through their people. And when we can identify those people, settling only with the company may not be sufficient. Redress for wrongdoing must never be seen as “a cost of doing business” made good by cutting a corporate check.
Individuals tempted to commit wrongdoing must understand that they risk it all if they do not play by the rules. When people fear for their own reputations, careers or pocketbooks, they tend to stay in line.
Of course, there will be cases in which it is not possible to charge an individual. But I have made it clear that the staff should look hard to see whether a case against individuals can be brought. I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in. It is a subtle shift, but one that could bring more individuals into enforcement cases.
When we do bring charges against individuals, we also need to consider all the possible remedies to prevent future wrongs. One of the most potent tools the SEC has is a court order imposing a bar on an individual – a bar from, for example, working in the securities industry or serving on the board of a public company. Such an order not only punishes past actions, but also can reduce the likelihood that the defendant can defraud and victimize the public again.
[…]
Win at Trial
Finally, a strong enforcement regime is only effective if we have the ability to back it up in court.
So, we need to maintain and enhance our ability to win at trial. For us to be a truly potent regulatory force, we need to remain constantly focused on trial readiness.
Indeed, because of our increased demands for admissions, we recognize that we may see more financial firms that say: “We’ll see you in court.” But that will not deter us. The SEC has a well-established record of winning when we go to trial – our recent win in the Tourre case is just the latest example. We must continue to sustain this successful record and ensure that we have sufficient resources available to litigate cases.
Significant and consistent trial wins also gives us the credibility we need to achieve strong and meaningful settlements, in every area that we will be pursuing in the coming years.
Conclusion
Going forward, I know you will be watching to see what we produce, as you should. A strong enforcement program provides greater protection for all investors participating in our markets. We should be judged by the quality of the cases we bring, by the aggressive and innovative techniques we use to pursue wrongdoers, by the tough sanctions and meaningful remedies we impose, and where appropriate by the acknowledgements of wrongdoing that we require.
Throughout my tenure as SEC Chair, I will continuously look for ways to make our enforcement program stronger.
The more successful we are at being – and being perceived as – the tough cop that everyone rightfully expects, the more confidence in the markets investors will have, the more level the playing field will be and the more wrongdoing that will be deterred.”
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There are two issues where White’s rhetoric and the reality of the SEC’s FCPA enforcement program most diverge.
First, White stated “any objective and informed observer agrees that the SEC has an exceptional enforcement record” and that “the SEC has a well-established record of winning when we go to trial.”
Not true in the FCPA context where the SEC has an overall losing record in FCPA enforcement actions when put to its ultimate burden of proof. As noted in this prior post, the SEC lost the Eric Mattson and James Harris individual enforcement actions at the motion to dismiss stage and as noted in this prior post, the SEC lost the Herbert Steffen individual enforcement action at the motion to dismiss stage. As noted in this prior post, in the Mark Jackson and James Ruehlen individual enforcement actions the court granted, without prejudice, the SEC’s claims that sought monetary damages and upon repleading the SEC’s ongoing case is a shell of its former self. In the ongoing enforcement action against Elek Straub and other former executives of Magyar Telekom, the court denied the defendants’ motion to dismiss (see here for the prior post).
Second, White stated “another core principle of any strong enforcement program is to pursue responsible individuals wherever possible. That is something our enforcement division has always done and will continue to do.”
As noted in this prior post, between 2008-2012, 79% of SEC corporate FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees. This figure is likely to climb when re-calculated to include 2013 SEC FCPA enforcement actions. Thus far this year there have been 4 SEC corporate FCPA enforcement actions and none of the actions have (at least yet) resulted in any SEC charges against company employees.
Friday Roundup
Cooperation vs. capitulation, quotable, and for the reading stack. It’s all here in the Friday roundup.
Cooperation vs. Capitulation
A good read (here) from George Terwilliger (Morgan, Lewis & Bockius and a former Deputy Attorney General) regarding the difference between cooperation vs. capitulation in DOJ inquiries. All sound advice and worth noting.
However, when the DOJ publicly states that a foreign company declined “to cooperate with the DOJ based on jurisdictional arguments” – as it did in the JGC FCPA enforcement action – the message being sent is that indeed the DOJ expects FCPA counsel to roll over and play dead. (See here for the prior post).
When the DOJ publicly “warn[s] defendants facing charges under the foreign bribery law against contesting [the] definition [of foreign official]” – as it did in connection with the Carson enforcement action – the message being sent is to capitulate. (See here for the prior post).
Quotable
Regarding JPMorgan’s recent $920 million to settle civil allegations brought by the SEC and other regulators in connection with a multibillion-dollar trading loss that’s come to be known as the London Whale case, the New York Times DealBook states:
“At first glance, it sounded like a lot of money and, frankly, it sounded as if the S.E.C. had a strong case and had exacted quite a settlement. But look closer and scrutinize the S.E.C.’s 15-page description of its findings. Then think about this: When the S.E.C. says that JPMorgan is ‘paying’ a record fine, where is the money actually coming from? The answer: shareholders. The same shareholders who were ostensibly the victims of the scandal that already cost them $6 billion. The victims, if you want to call them that, become victimized twice.”
The article then quotes Columbia University Law Professor John Coffee as follows.
“It is perversely inappropriate. You are adding injury to injury. All we’re doing is punishing the shareholders more,” said John C. Coffee Jr., a professor of securities law at Columbia Law School. “This is a case where the victims are the shareholders.”
If you’re wondering why the S.E.C. sought to settle with “the firm” — in truth, JPMorgan’s shareholders, who don’t have say in the matter — rather than bring cases against the individuals who were responsible for the admitted failures of “the firm,” Mr. Coffee has a skeptical, if not necessarily cynical, theory that bears repeating: “You could have tried to sue some individuals for negligence, but I don’t think those cases they would have easily won.”
Instead, he said, the S.E.C. pursued what he described as “the path of least resistance” by suing the firm itself.
“It is much easier for the S.E.C. to settle for very high penalties which are borne by the shareholders,” he said. “The S.E.C. often desperately needs a victory. This way you can get a victory that you can celebrate.”
But on the merits of the case, the settlement, Mr. Coffee said, begins to look a lot like bribery — to some degree, on both sides. Without a strong case against any individuals, the S.E.C. looks as if it held the firm for ransom. And on the other side, the firm’s senior management appears to have bribed the S.E.C., using shareholder money, not to bring cases against individuals.
“It’s a form of self-dealing,” Mr. Coffee said.”
Reading Stack
See here for the upswing in white collar defense work among large Philadelphia firms. The article stated, “to promote its white-collar practice, [a firm] recently began showing a corporate training film to potential clients that depicts the travails of a multinational company whose share price crashed after employees were charged with bribery in a foreign jurisdiction. The takeaway: This is what can happen without good white-collar legal advice.”
For a better way to prosecute corporations, look overseas says Professors Brandon Garrett and David Zaring in the NY Times DealBook.
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A good weekend to all.
Don’t Believe The Hype On SEC Statute Of Limitations
The statute of limitations is a fundamental legal principle setting a fixed period of time to file a lawsuit after a claim arises. Last term in Gabelli v. SEC, the Supreme Court unanimously rejected the SEC’s attempt to expand that time limit. The Court sensibly reaffirmed that statutes of limitations “promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.”
The SEC is now pushing Congress to double its existing five-year time limit (applicable to Foreign Corrupt Practices Act offenses and many others) to ten years. Senator Jack Reed (D-RI), a high-ranking member of the Senate Banking Committee, reportedly intends to introduce legislation this fall.
But the SEC already has several arrows in its quiver, such as the discovery rule and the fraudulent concealment doctrine, to extend the five-year statute of limitations in many cases. Moreover, a statute of limitations is largely a meaningless legal principle in most corporate SEC enforcement actions given that cooperation, and not necessarily the law and the facts, dictate the outcome in many corporate enforcement actions and thus motivate most corporations under SEC scrutiny to sign tolling agreements suspending the statute of limitations or to waive statute of limitations defenses altogether.
In short, the SEC faces few meaningful time constraints in bringing corporate enforcement actions. For instance, the SEC’s most recent Foreign Corrupt Practices Act enforcement action – in May against the French oil giant Total S.A. – was based on conduct that allegedly occurred between 1995 and 1997 and which the SEC began investigating in 2003.
The gray cloud and uncertainty that SEC scrutiny represents, hangs over companies and its shareholders for far too long and can have wide-ranging, negative business implications. Justice is not promoted by extending this period of uncertainty by doubling the statute of limitations to ten years.
The SEC not surprisingly supports this proposal. Simply put it would make the SEC’s job easier. However, ease of enforcement has never been a proper consideration in a legal system based on due process and the rule of law. Grasping for something that might stick, SEC officials have stated that such an extension of the statute of limitations is warranted “given the complexity” of the cases and the “nature of the frauds” it investigates.
Don’t believe the hype.
The reason the SEC often fails when put to its burden of proof on statute of limitations issues has little to do with the“complexity” of the underlying conduct, but more often simple lack of diligence. For instance, in dismissing the SEC’s complaint against executive officers of Microtune, Inc. a judge blasted the SEC’s lack of diligence in investigating the alleged misconduct. The judge was especially critical of the SEC’s acknowledgement that, “often for resource reasons,” the agency “wait[s] until the company does its own investigation before we complete ours.” Likewise, in dismissing with prejudice the SEC’s monetary claims against executive officers of Noble Corp., another judge ruled that the “SEC has not pled any facts that support the inference that it acted diligently” in bringing the case.
Ask any practitioner with matters before the SEC and, in a candid moment, they will tell you that SEC inquiries often drag on unnecessarily for years, including long stretches of complete inactivity. They will also tell you that delays due to unreturned phone calls and other purported “resource” issues, including employee turnover, are the norm. Indeed, the Wall Street Journal recently reported that in the past year “four of the [SEC]’s divisional chiefs have stepped down” along with “four of the 11 regional [SEC] directors.” Enforcement delays caused by SEC enforcement officials seeking more lucrative jobs in the private sector are a poor excuse for allowing the gray cloud of SEC scrutiny to linger over companies and its shareholders.
As the Supreme Court reaffirmed in Gabelli, statutes of limitations “provide security and stability to human affairs” and it “would be utterly repugnant to the genius of our laws if actions for penalties could be brought at any distance of time.”
Having lost before the Supreme Court, the SEC is trying to convince Congress that bringing stale claims is not so repugnant after all, and that it needs more time to bring its enforcement actions.
Congress should reject this request and reaffirm the SEC’s need to pursue it’s cases with diligence.
Friday Roundup
Interesting, hardly a smoking gun, law enforcement ought not be a competition, quotable, and for the reading stack. It’s all here in the Friday roundup.
Interesting
An interesting study (here) from Michael Klausner (Nancy and Charles Munger Professor of Business and Professor of Law at Stanford Law School) and Jason Hegland (Project Manager for Stanford Securities Litigation Analytics). Using a “universe of SEC enforcement actions involving nationally listed firms for violation of disclosure-related rules—fraud, books and records and internal control rules” from 2000 to the present, the authors found, among other things, that only 7 percent of corporate SEC enforcement actions involved no individual defendants.
Such a finding stands in stark contrast to corporate SEC Foreign Corrupt Practices Act enforcement actions. As noted in this previous post, since 2008 approximately 80% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees. This figure is likely to climb when I re-calculate the statistic to account for 2013 FCPA enforcement. To date, the SEC has brought four corporate FCPA enforcement and none have resulted (at least yet) in any SEC charges against company employees.
Kudos to Klausner and Hegland for the quality of their data and using the “core” approach. The authors state:
“We define a “case” in a specific way in order to organize the data. A case, as we use the term, is a set of one or more enforcement actions against a company and/or its executives and/or third parties such as accountants or underwriters for the same misstatement that led to a violation. Thus, if the SEC brings an action against ABC Co and one or more separate actions against ABC Co.’s executives and its outside auditor, all for a misstatement in ABC Co.’s 2012 financial statements, we consider all those separate actions as one “case.””
This is consistent with the “core” approach I use to keep my FCPA statistics. (See here for the prior post). The “core” approach is also what the DOJ uses (see here for the prior post). However, many in FCPA Inc. use other creative counting methods to measure FCPA enforcement and related issues. This is a huge quality of data issue and completely muddies the conversational waters on many FCPA issues.
Hardly a Smoking Gun
Reuters and other media outlets have carried forward Chinese state media reports as follows. “A Chinese police investigation into drugmaker GlaxoSmithKline has discovered that alleged bribery of doctors in China was coordinated by the British company and was not the work of individual employees.”
The smoking gun?
Apparently GSK “had set goals for annual sales growth as high as 25 percent. That rate was 7 to 8 percentage points above the average growth rate for the industry” [according to one of GSK’s detained executives] and “GSK implemented salary policies based on sales volumes and such goals could not be achieved without “dubious corporate behavior.”
That is hardly a smoking gun.
Competition
At times it seems like there is a new “global arms race” to see which country can bring the most enforcement actions for the largest dollar value. Competition is generally good, but law enforcement ought not be a competition where quantity of enforcement becomes more important than quality of enforcement. Evidence of the former can be found in the following.
In this recent speech David Green (Director of the U.K. Serious Fraud Office) stated as follows.
“When it comes to prosecutions of corporates, the SFO’s performance is often compared unfavourably to that of US prosecutors. The key reason for this is the much higher bar that we in the SFO face in proving corporate criminal liability. Currently, in order to prove corporate liability, we have to prove that the controlling mind of the corporate was complicit in the relevant criminality.”
In other respects, Green’s speech reads like a political stump speech, not that of a high-profile law enforcement official.
This article in the South China Morning Post titled “Beijing Weighing Large Fines Against GlaxoSmithKline quotes from the China Ministry of Public Security website which states: “We should learn from the practice of other countries in imposing astronomical fines.”
Quotable
From Jonathan Weil’s Bloomberg View column:
“In the U.S., companies hire powerful people’s children all the time for reasons beyond their obvious skill set. (Chelsea Clinton working at a hedge fund?) And they don’t just bother with the kids — they hire the powerful people themselves. (Do you think Larry Summers got a high-paying job at the hedge fund D.E. Shaw because of his skills as a trader?)
If the feds are going to target wheel-greasing in China — where it can be difficult to get business done without bribing somebody — does this mean we need a Domestic Corrupt Practices Act, too? In Colorado, JPMorgan used to employ Chris Romer as a banker. His father, Roy Romer, was the state’s governor for 12 years. Did that help Chris Romer get hired? It couldn’t have hurt. Do we need a law against this? Of course not.
There are certain facts of life that aren’t worth bringing in the FBI to check out. When rich people with teenage children give millions of dollars to elite universities, there’s a good chance they want special attention from the admissions office for their kids, if not an outright guarantee they will get in. And when owners of companies hire senators’ kids for internships, they probably would like to meet the parents someday.
Perhaps what JPMorgan did in China was worse. We don’t know yet. But let’s not get ahead of ourselves. The decision of whether to hire someone often has less to do with that person’s qualifications than it does with who they are. Life isn’t fair — not in the U.S. and not in China.”
Reading Stack
From Thomas Gorman (Dorsey & Whitney), “The New FCPA Guide: A Road Map to Crafting an Effective Compliance Defense.”
A client alert from Paul Hastings, “Preparing for Shareholder Lawsuits When Dealing with Foreign Corrupt Practices Act Investigations.”
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A good weekend to all.
With Increasing Frequency, The SEC Is Avoiding Judicial Scrutiny Altogether In FCPA Enforcement Actions
The SEC has had some notable struggles with the courts in recent years.
The SEC’s neither admit nor deny settlement policy has been questioned by several judges (most notably Judge Jed Rakoff) and is currently before the Second Circuit. In the Gabelli case, the SEC unanimously rejected the SEC’s statute of limitations position.
In recent Foreign Corrupt Practices Act enforcement actions:
Judge Leon expressed concerns regarding the Tyco and IBM enforcement actions and approved the settlements only after imposing additional reporting requirements on the company (for more see this recent Wall Street Journal Risk and Compliance Journal article).
Judge Shira Scheindlin dismissed the SEC’s case against former Siemens executive Herbert Steffen (see here for the prior post).
Judge Keith Ellison granted without prejudice Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages (see here for the prior post).
The solution to these recent struggles?
With increasing frequency, the SEC is avoiding judicial scrutiny altogether in FCPA enforcement actions.
Thus far this year there have been four corporate SEC FCPA enforcement actions. Three of the four enforcement actions (75%) have bypassed the courts altogether.
As noted in this prior post, the SEC resolved the Total enforcement action via an administrative order.
As noted in this prior post, the SEC resolved the Ralph Lauren action via a non-prosecution agreement.
As noted in this prior post, the SEC resolved the Philips action via an administrative order.
[The SEC resolved the Parker Drilling action via a settled civil complaint – see here]
The above dynamic is the focus of the lead article in the always informative FCPA Update by Debevoise & Plimpton. The abstract of the article by Paul Berger, Sean Hecker, Erin Sheehy and Natalie Gray states:
“After discussing a likely major driver of the use of administrative proceedings, i.e., the uncertainty of federal court action on court-filed settlements requiring judicial approval, [the] article outlines the different resolutions available to the SEC in FCPA cases and highlights the key distinctions between a court-ordered injunction and an administrative cease-and-desist order. [The article] also point[s] out what companies should keep in mind about FCPA settlements achieved via administrative orders. Finally, [the article] examines recent trends in SEC FCPA settlements and explains why companies should expect … to see more FCPA cases settle through administrative proceedings.”
For additional reading on the use of SEC administrative proceedings in FCPA enforcement actions, see this prior guest post.